How Job Creation, Job Destruction, and Match Capital Improve Worker Outcomes
Date
2023-08-09
Authors
Roy, Soumyadip
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Palgrave Macmillan, Cham
Abstract
A first best match between a firm and a worker would maximize the worker’s productivity relative to all other possible matches. If all workers were assigned to jobs such that no worker could be reassigned and raise aggregate output, the economy would maximize the surplus that it could distribute to its members. Using a model of job search, we show that labor market policies that raise the cost of search, slow the arrival rate of job offers, limit worker mobility or truncate the distribution of wage offers will lead to a less efficient matching process and reduce the number of matched workers. Frictions in job search will give rise to monopsony power that will lower worker’s share of output and limit the number of successful matches. We illustrate how restrictions on search lead to fewer and poorer matches using the cases of employment protection, occupational licensing, and minimum wages. We support the theoretical arguments with evidence that economies with more regulations that constrain job search and matching have higher unemployment rates, lower average incomes, and greater income inequality.
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Book chapter
Comments
This is a manuscript of a book chapter published as Orazem, P.F., Roy, S. (2023). How Job Creation, Job Destruction, and Match Capital Improve Worker Outcomes. In: Kassens, A.L., Hall, J.C. (eds) Challenges in Classical Liberalism, pp. 143-167. Palgrave Studies in Classical Liberalism. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-32890-9_8. Posted with Permission.